Tuesday, March 12th, 2024
The biggest economic report out this week came forth this morning: February’s Consumer Price Index (CPI), which is a major inflation tracker. In fact, headline CPI year over year is known as the Inflation Rate, and that came in a tad hotter than expected: +3.2%, 10 basis points (bps) higher than the previous month (though 20 bps beneath the December Inflation Rate). For context, we were at +5.0% in March of last year, and the low point of the past year came in June 2023 at +3.0%.
The Fed, along with the rest of us, are looking for these figures to move to sub-3%, which we haven’t seen for three years. This is one of those metrics directly affected by the Great Reopening, which flung the doors open to the economy following the “herd immunity” from Covid once vaccinations made their way through the American population. For a little more context, in June ’22 we were staring down an Inflation Rate that was +9.1% — levels we had not seen since late 1981, which brought us to the first recession back during the Ronald Reagan presidency.
Month over month, +0.4% was in-line with expectations and 10 bps higher than the January print. Core CPI (stripping out volatile food and energy prices) month over month was also +0.4% — 10 bps hotter than analysts had predicted, and in-line with the previous month. Again, going back to the summer of 2021, we were seeing +0.9% month-over-month core CPI. To find a cooler monthly print, we look back to +0.2% in October of last year.
Perhaps the most important read of all this data is core CPI year over year, and this came in 10 bps warmer than expected, at +3.8%. While down from the +3.9% registered over the past couple months, we’re still nearly double where the Fed’s preferred inflation rate continues to be. Thus, while everyone whose business it is to make predictions on the Fed’s interest rate decisions has by now erased a rate cut from next week’s FOMC meeting, these CPI figures appear to be pushing that first cut — which Fed Chair Jerome Powell last week says he expects at some point this year — out to June.
Shelter and gas went up in this latest CPI report, while food was flat. Airline prices remain high, but analysts see the owner’s equivalent rent as being a stickier aspect of our current inflation situation. All in all, this is likely still better for the Fed and for the American citizenry than seeing CPI numbers come crashing back down to 2%. Yes, that would cause the Fed to act faster, but it would also make it much more likely that we were headed for a certain recession.
As such, pre-market trading is treating this news favorably. Ahead of this CPI print, the Dow was -54 points, the S&P 500 was +6 and the Nasdaq +58 points. Following the release, we’re now seeing the Dow swing to +77 points, the S&P +28 and the Nasdaq +140 points. The economy continues to assimilate these higher interest rates — 5.25-5.50% since late July of last year — and, as per Powell’s cue, remain hopeful that those rate cuts are indeed on the way.
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CPI Sticky, but Still Pointed in the Right Direction
Tuesday, March 12th, 2024
The biggest economic report out this week came forth this morning: February’s Consumer Price Index (CPI), which is a major inflation tracker. In fact, headline CPI year over year is known as the Inflation Rate, and that came in a tad hotter than expected: +3.2%, 10 basis points (bps) higher than the previous month (though 20 bps beneath the December Inflation Rate). For context, we were at +5.0% in March of last year, and the low point of the past year came in June 2023 at +3.0%.
The Fed, along with the rest of us, are looking for these figures to move to sub-3%, which we haven’t seen for three years. This is one of those metrics directly affected by the Great Reopening, which flung the doors open to the economy following the “herd immunity” from Covid once vaccinations made their way through the American population. For a little more context, in June ’22 we were staring down an Inflation Rate that was +9.1% — levels we had not seen since late 1981, which brought us to the first recession back during the Ronald Reagan presidency.
Month over month, +0.4% was in-line with expectations and 10 bps higher than the January print. Core CPI (stripping out volatile food and energy prices) month over month was also +0.4% — 10 bps hotter than analysts had predicted, and in-line with the previous month. Again, going back to the summer of 2021, we were seeing +0.9% month-over-month core CPI. To find a cooler monthly print, we look back to +0.2% in October of last year.
Perhaps the most important read of all this data is core CPI year over year, and this came in 10 bps warmer than expected, at +3.8%. While down from the +3.9% registered over the past couple months, we’re still nearly double where the Fed’s preferred inflation rate continues to be. Thus, while everyone whose business it is to make predictions on the Fed’s interest rate decisions has by now erased a rate cut from next week’s FOMC meeting, these CPI figures appear to be pushing that first cut — which Fed Chair Jerome Powell last week says he expects at some point this year — out to June.
Shelter and gas went up in this latest CPI report, while food was flat. Airline prices remain high, but analysts see the owner’s equivalent rent as being a stickier aspect of our current inflation situation. All in all, this is likely still better for the Fed and for the American citizenry than seeing CPI numbers come crashing back down to 2%. Yes, that would cause the Fed to act faster, but it would also make it much more likely that we were headed for a certain recession.
As such, pre-market trading is treating this news favorably. Ahead of this CPI print, the Dow was -54 points, the S&P 500 was +6 and the Nasdaq +58 points. Following the release, we’re now seeing the Dow swing to +77 points, the S&P +28 and the Nasdaq +140 points. The economy continues to assimilate these higher interest rates — 5.25-5.50% since late July of last year — and, as per Powell’s cue, remain hopeful that those rate cuts are indeed on the way.
Questions or comments about this article and/or author? Click here>>